Canadian Dollar Rallies Against U.S. Dollar

U.S. Dollar Is Under Strong Pressure

USD/CAD is currently trying to settle below 1.2500 while U.S. dollar is losing ground against a broad basket of currencies.

The U.S. Dollar Index has recently managed to get below the support at 95.20 and is moving towards the next support level at 95. In case the U.S. Dollar Index declines below this level, it will move towards the next support at 94.75 which will be bearish for USD/CAD.

Today, foreign exchange market traders focused on inflation data from U.S. Inflation Rate increased by 0.5% month-over-month in December compared to analsyt consensus which called for growth of 0.4%.

On a year-over-year basis, Inflation Rate grew by 7%, in line with the analyst consensus. Meanwhile, Core Inflation Rate increased by 5.5% year-over-year while analysts expected that it would grow by 5.4%.

Interestingly, the bond market’s reaction to the reports was muted. Meanwhile, the U.S. dollar found itself under significant pressure against a broad basket of currencies, and it looks that traders believed that inflation would exceed analyst expectations.

Technical Analysis

USD to CAD is testing the support level at 1.2500. RSI is still in the moderate territory despite the strong pullback, so there is plenty of room to gain downside momentum in case the right catalysts emerge.

If USD to CAD manages to settle below 1.2500, it will head towards the next support level at 1.2475. A move below this support level will push USD to CAD towards the support at 1.2450. In case USD to CAD declines below the support at 1.2450, it will head towards the support level which is located at 1.2425.

On the upside, the previous support level at 1.2530 will serve as the first resistance level for USD to CAD. If USD to CAD gets back above this level, it will move towards the next resistance at 1.2550. A successful test of the resistance at 1.2550 will open the way to the test of the resistance at 1.2590.

For a look at all of today’s economic events, check out our economic calendar.